ski west, incorporated, operates a downhill ski area near lake tahoe, california. an all - day adult lift…

ski west, incorporated, operates a downhill ski area near lake tahoe, california. an all - day adult lift ticket can be purchased for $85. adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from december 1 through april 30. ski west expects its season pass holders to use their passes equally throughout the season. the companys fiscal year ends on december 31. on november 6, 2024, ski west sells a season pass to jake lawson for $450. required: 1. when should ski west recognize revenue from the sale of its season passes? 2. what are the financial statement effects from the sale of the season pass on november 6, 2024? 3. what will be included in ski wests 2024 income statement and balance sheet related to the sale of the season pass to jake lawson? complete this question by entering your answers in the tabs below. required 1 required 2 required 3 when should ski west recognize revenue from the sale of its season passes? when should ski west recognize revenue from the sale of its season passes?

ski west, incorporated, operates a downhill ski area near lake tahoe, california. an all - day adult lift ticket can be purchased for $85. adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from december 1 through april 30. ski west expects its season pass holders to use their passes equally throughout the season. the companys fiscal year ends on december 31. on november 6, 2024, ski west sells a season pass to jake lawson for $450. required: 1. when should ski west recognize revenue from the sale of its season passes? 2. what are the financial statement effects from the sale of the season pass on november 6, 2024? 3. what will be included in ski wests 2024 income statement and balance sheet related to the sale of the season pass to jake lawson? complete this question by entering your answers in the tabs below. required 1 required 2 required 3 when should ski west recognize revenue from the sale of its season passes? when should ski west recognize revenue from the sale of its season passes?

Answer

Explanation:

Step1: Revenue recognition principle

Revenue should be recognized when the performance obligation is satisfied. For season - passes, Ski West's performance obligation is to provide ski access over the season. So, revenue should be recognized over the period of the ski season as the service is provided.

Step2: Financial statement effects on sale date

On November 6, 2024, when the season - pass is sold, Ski West receives cash of $450. This increases the cash asset. At the same time, a liability (unearned revenue) is created for $450 because Ski West has not yet provided the service.

Step3: 2024 income statement and balance sheet

The ski season runs from December 1 through April 30. In 2024, from December 1 - December 31 (1 month out of 5 months of the season), Ski West should recognize revenue of $\frac{450}{5}=90$. On the 2024 income statement, revenue of $90 is included. On the balance sheet, unearned revenue is $450 - 90=360$ and cash is $450$.

Answer:

  1. Revenue should be recognized over the ski - season (December 1 - April 30) as the service is provided.
  2. On November 6, 2024, cash increases by $450 and unearned revenue (a liability) increases by $450.
  3. Income statement: Revenue of $90 is included. Balance sheet: Cash of $450 and unearned revenue of $360 are included.